Puerto Rico offers various legislative measures to support the establishment and growth of nonprofit organizations, mainly through Acts 60, 20, 22, and 273. These acts not only provide substantial tax incentives but also encourage contributions from both local and international donors. Here’s a detailed look into these acts and their benefits for nonprofit organizations in Puerto Rico. Act 60: The Code of Incentives Act 60, also known as the “Code of Incentives”, became law on July 1, 2019. It was designed to gather and measure the return on investment of the available Puerto Rico tax incentives acts, including Acts 20 and 22 of 2012. Although it brought various changes to these acts, applicants had the option of applying and being grandfathered under Acts 20 and 22 if they applied by December 31, 2019. Applications submitted after January 1, 2020, are fully subject to the provisions of Act 60 of 2019.

Main Changes Brought by Act 60

Changes to Act 20 of 2012 (Export Services Act)

• Municipal License Taxes: The exemption was reduced from 60% to 50%.
• Real and Personal Property Taxes: The exemption was reduced from 90% to 75% on property used for export, promotion, and trade services.
• Employee Requirement: Act 20 had no employee requirement. Under Act 60, one employee is required if the company’s projected or actual volume of business exceeds $3,000,000.
• Decree Term: The term was reduced from 20 years (renewable for ten years) to 15 years (renewable for 15 years).

Changes to Act 22 of 2012 (Individual Investors Act)

Act 22 aims to attract new residents to Puerto Rico by providing a total exemption from Puerto Rico income taxes on all passive income realized or accrued after such individuals become bona fide residents of Puerto Rico. The relocation is expected to result in new local investments in real estate, services, and other consumer products, and in capital injections to the Puerto Rico banking sector, stimulating the economy.

Business Services Eligible Under Act 20

• Research and Development
• Advertising and Public Relations
• Consulting Services: Economic, environmental, technological, scientific, managerial, marketing, human resources, computer, and auditing.
• Creative Industries: Including design, arts, media, and creative services.
• Professional Services: Legal, tax, and accounting.
• Management Services: Strategic direction, planning, distribution, logistics, and budgetary services.
• Electronic Data Processing Centers
• Computer Program Development
• Telecommunications: Voice and data services.
• Call Centers and Shared Service Centers
• Storage and Distribution Centers
• Educational and Training Services
• Hospital and Laboratory Services
• Investment Banking and Financial Services: Including asset management, alternative investment management, and more.
• Commercial Distribution and Trading of Products
• Marketing Centers

Tax Benefits Under Act 20

• 4% Maximum Tax Rate: On income related to the exportation of services.
• 100% Exemption on Income Tax Rate: On dividends or profit distributions.
• 60% Exemption on Municipal License Taxes
• 90% Exemption of Real and Property Taxes
• 20-Year Tax Decree: Renewable for an additional 10-year period.

Tax Treatment Under Act 22

• Passive Income Exemptions: 100% tax exemption from Puerto Rico income taxes on all dividend and interest income for new residents.
• Capital Gain Exemptions: 100% exemption on all capital gains accrued after becoming a new resident. Gains accrued prior to residency are taxed at 10% if recognized within ten years and 5% if recognized after ten years. The U.S. will not tax these gains if recognized after ten years of residency.
• Requirement for New Residents: Must not have lived in Puerto Rico from 2006 to 2012 and must be physically present in Puerto Rico for at least 183 days during the taxable year.

Act 273: The International Financial Center Regulatory Act

Act 273 aims to make Puerto Rico an international banking and financial center by granting tax incentives for new banking and financial activities provided to clients outside the island. This includes:

• Accepting Deposits
• Borrowing Money
• Lending
• Letters of Credit
• Foreign Currency Exchange
• Underwriting
• Trade Financing
• Trust Services
• Securities Brokerage
• Clearinghouse Services
• Asset Management
• Other Financial Services

Tax Benefits Under Act 273

• 4% Flat Income Tax Rate: On income from eligible activities.
• Dividends Tax: 6% for Puerto Rico residents; 100% exemption from Puerto Rico taxes for non-residents.
• 100% Exemption from Property Taxes
• Municipal Gross Receipts Tax: Up to 1.5% for financial services.
• 15-Year Tax Decree: Renewable for two additional 15-year periods.

Conclusion

Acts 60, 20, 22, and 273 offer significant benefits for businesses and individuals in Puerto Rico, particularly in the nonprofit sector. By leveraging these incentives, organizations can contribute to the economic growth and development of Puerto Rico while enjoying substantial tax savings. These acts create a favorable environment for attracting new residents and businesses, ultimately driving investment and fostering a thriving community.